December 18, 2015 | By

Guest Commentary — Trade Wars: A New Hope



It’s been a rough year for global trade. Notwithstanding the fanfare that followed October’s successful Trans-Pacific Partnership negotiations, the deal’s path forward seems increasingly fraught. And while the TPP threatens to stagnate, world trade shrank more this year than at any point since the financial crisis.

Against this backdrop, trade ministers are meeting this week in Nairobi, Kenya, for the World Trade Organization’s 10th Ministerial Conference. The original hope was for WTO leaders to get the global trade agenda back on track, but expectations now couldn’t be much lower. In a speech last week, WTO Director-General Roberto Azevedo warned of failure, announcing “We currently, today, have no deliverables for Nairobi.”
         
This is a bad sign at a crucial moment for the global economy. The WTO has an important role to play in advancing trade liberalization and preventing trade wars, but, today, it seems as if it is teetering on the brink of irrelevance. After seven years of stagnation in Geneva, the issue is no longer whether any given ministerial will succeed or fail, but rather, whether there can be a viable global trading system without an active WTO.
           
How did we get here? And is there any hope for global trade talks going forward?

A good place to start is the Doha Development Agenda. Launched in 2001 by over 140 WTO members, Doha was supposed to fundamentally redefine international trading relations and development for the 21st century. It was to be the first big undertaking of the new organization, improving trading prospects especially for developing countries through lower trade barriers and updated trade rules.  

Instead, the Doha negotiations have hung like an albatross around the WTO since negotiations lagged and then ultimately broke down in 2008. Today, WTO members are still deeply divided over whether Doha should be finally put to rest, with a new round of negotiations taking its place, or whether members should continue on under the Doha framework.

There are at least two big reasons why Doha derailed, both of which reflect broader structural issues within the WTO. First was the number of countries involved. The original round of global trade talks in 1947 involved 23 countries, whereas Doha involved over 140. Second was that the Doha agenda was unable to strike a balance between the interests of developed and developing countries. China and India, for instance, were unwilling to take on some of the obligations that were urged by the US and EU.

While the Doha deadlock has made the path forward more difficult, there is, in fact, a path out there. Some countries, for instance, have sought trade progress through regional or bilateral agreements, such as the Trans-Pacific Partnership and the Transatlantic Trade Investment Partnership. These regional approaches have differed from those at the WTO in a fundamental way. Whereas the multilateral efforts within the WTO stressed a ‘top-down’ approach in which the major developed powers essentially made the rules (which were subsequently vetoed by developing countries), the regional efforts were, in effect, a ‘bottom-up’ approach that allowed new trade rules to be built around the WTO.

Another way forward involves trade deals that are reached by some but not all WTO members—known as plurilateral deals, in trade parlance. For example, the Agreement on Government Procurement (GPA), which was revised and implemented in April 2014, significantly opens government procurement activities (from telecommunications, roads, airports, defense, etc.) to international competition. Or look at the recently expanded Information Technology Agreement which eliminates tariffs on 201 IT products that, according to WTO estimates, account for $1.3 trillion per year and nearly 7% of total global trade.

An important question is whether these plurilateral deals can be added to the WTO framework, and applied to all members. If so, this would be a big step forward in liberalizing new parts of global commerce that have so far been deadlocked in the WTO.

What does all of this tell us about what we should expect from the WTO in the years ahead? One takeaway is that the days in which big trade rounds deliver big deals are not coming back anytime soon. Instead, trade ministers should focus their efforts on alternative approaches (such as regional trade agreements like TPP, or plurilateral agreements like the ITA.)

Progress is possible—even if we don’t see any in Nairobi.  

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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